FATF Guidance in relation to the Risk Based Approach for Trust and Company Service providers – helping TCSPs design effective measures to manage money laundering/terrorist financing risks

The Financial Action Task Force (FATF) published updated guidance in relation to the Risk Based Approach (RBA) for Trust and Company Service Providers (TCSPs) on 26 June 2019 (the Guidance).  A copy of the Guidance can be found here.

The Guidance has been developed to assist TCSPs professionals, practitioners with TCSPs as customers, and countries and competent authorities supervising TCSPs, to apply the RBA in the implementation of FATF Recommendations to combat money laundering/terrorist financing (ML/TF).  It sets out what the RBA entails, outlines high-level principles involved in applying the RBA, and provides examples of good practices for legal and regulatory authorities and TCSPs practitioners in the design and implementation of an effective RBA to ML/TF.

One of the purposes of the Guidance is to assist TCSPs in the design of effective measures to manage their ML/TF risks when establishing and maintaining business relationships.  Accordingly, specific guidance for TCSPs is set out in Section III of the Guidance, highlighting the following:-

• The development of the ML/TF risk assessment is a key starting point for the application of the RBA and should be commensurate with the nature, size and complexity of a TCSP's business.
• It is the responsibility of the senior management of TCSPs to foster and promote a culture of compliance as a core business value. They should ensure that TCSPs are committed to managing ML/TF risks when establishing or maintaining business relationships.
• TCSPs should design their policies and procedures so that the level of initial and ongoing client due diligence measures addresses the ML/TF risks they are exposed to. The Guidance explains TCSPs' obligations regarding identification and verification of beneficial ownership information and provides examples of standard, simplified and enhanced CDD measures based on ML/TF risk.
• The Guidance emphasizes the importance of competent authorities supervising TCSP's maintenance of beneficial ownership information on legal persons and legal arrangements, and making them available in a timely manner to competent authorities when required.

The regulator of TCSPs in Hong Kong, the Companies Registry (the Registry), to date has sent the message that it is prepared to take a vigorous and proactive approach to enforcement in relation to its supervisory role over TCSPs. We therefore expect the Registry to closely scrutinize the anti-money laundering and counter terrorist financing compliance measures adopted by TCSPs.

Please get in touch with us if you require assistance in reviewing your AML/CTF policies and internal measures in light of the Guidance.